Homestead Sales Proceeds In Chapter 7 Bankruptcy

The term "homestead account" is not an official legal term under Florida law. The term is used to describe a financial account that contains money from the sale of a homestead property. Money from sale of a primary residence remains exempt under Florida’s homestead law when it is deposited in a bank account so long as the debtor and former owner intends to reinvest the money in another homestead property within a reasonable time. Once a new homestead is purchased any money remaining in the "homestead account" loses its homestead exemption. A caller described his situation where he sold his homestead, deposited money in a bank account intending to find a new homestead, but before he could find and purchase a new home he filed bankruptcy. After he filed, just before the case was closed, he used most, but not all of the homestead proceeds to buy a new home . He wanted to know if the remaining sale proceeds would be taken by the bankruptcy trustee.

The exemption of money in the homestead account is determined as of the date the bankruptcy was filed. If on filing date this debtor actually intended to reinvest all the money in a new homestead the money was probably exempt in bankruptcy. Moreover, the trustee has a limited time to object to the exemption of this money, or any other asset. By the time the bankruptcy proceeding is almost closed, as in this case, that exemption time has run. If after filing the debtor decided to buy a lesser house and sales proceeds were left over the remaining money should not be divested of its bankruptcy exemption. Of course, any new creditor arising after bankruptcy filing could attack the remaining homestead account money.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida